The Productivity Commission will undertake a major inquiry into the role of mental health in the economy as the Morrison government looks to extract better value from the $9 billion a year spent on mental wellbeing.

Treasurer Josh Frydenberg and Health Minister Greg Hunt have asked the commission to examine "whether the current investment in mental health is delivering value for money", as well as how to improve economic and social participation for people struggling with their mental health.

Four million Australians deal with a chronic or episodic mental health issue each year, and one in five people affected by mental illness do not seek help because of the stigma, Mr Hunt said.

Treasurer Josh Frydenberg said it was crucial mental health funding was effectively deployed.Credit:AAP

Of the $9 billion governments spent on mental health each year - or $1 million every hour - a little more than half comes out of federal coffers, with the rest coming from the states and territories, according to the Coalition government.

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"It is crucial that we know that this funding is delivering the best possible outcomes for individuals and their families, and that is one of the issues the inquiry will investigate," Mr Frydenberg said.

Lifeline chairman John Brogden called it "an outrage" and observed: "We are spending more than we've ever spent on suicide prevention, but the more we spend the worse things seem to get."

In 2014, a landmark report from the University of NSW and the Black Dog Institute put the annual economic cost of mental ill health at $11 billion, chiefly due to absenteeism and lost productivity.

Former National Mental Health Commission chairman Allan Fels had pushed for the Productivity Commission inquiry into mental health, calling it the "weak point" of Australia's health system.

Psychiatrist and youth mental health advocate Patrick McGorry, a former Australian of the Year, said the government's move was "probably a good thing - unless it kicks the can down the road".

He warned the government it needed to increase - not reduce or curb - spending on mental health.

"If this is a way of looking at extracting efficiency out of the current underspend, that would be a very poor outcome," Professor McGorry told Fairfax Media.

"It’s probably a good thing - unless it kicks the can down the road": Professor Patrick McGorry.Credit:Eddie Jim

"The investment is so out of sync with the scale of the problem. This is why all these terrible outcomes are occurring."

The inquiry's terms of reference direct the commission to develop a framework to measure and report the outcomes of mental health policies and expenditure against workforce participation, productivity and economic growth over the long term.

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It will also examine how sectors outside health - such as education, the workplace, social services and the justice system - can contribute to better mental health and economic participation.

"It is important that policy settings are sustainable, efficient and effective in achieving their goals," the document states. The commission will report back to the government in 18 months.

Research by the Harvard Medical School cited by the World Economic Forum found productivity was affected by absenteeism and "presentee-ism", whereby people work long hours with little impact. Employees with mental health issues took 5 per cent more days off work, according to the study.

The World Health Organisation estimates mental health disorders cost the global economy $1 trillion in lost productivity each year. The number of people suffering depression worldwide is estimated at 300 million, and the illness is prevalent in developed countries such as Australia.

The federal government dedicated an additional $338 million to mental health in the May budget, including extra services for aged care facilities, follow-up care for people who attempt suicide and extra funds for Lifeline.